DESCRIBING THE NATURE

OF TRANSACTIONS IN A
MERCHANDISING BUSINESS
for Fundamentals of Accountancy,
Business and Management 1
Senior High School (ABM)
Quarter 2 / Week 3

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 FOREWORD

This Self Learning Kit for Fundamentals of

Accountancy, Business and Management 1 is
designed specifically for Grade 11 ABM students. In this
learning kit, ABM students will gain knowledge on the basic
accounting concepts, theories, as well as analysis on
the different business transactions.
It is aligned with the BEC of the Department of
Education following the prescribed MELCs (Most Essential
Learning Competencies. It has the following features
proven to be valuable aids to learning Accounting even
at
home.
What happened
This section contains pre-activities like review of the
prior knowledge and a pretest on what you have
learned in their previous discussions.
What I Need To Know (Discussion)
This section contains definition of terms, examples and
the corresponding analysis on the different nature of
transactions in a merchandising business, its operating
cycle and the different journals used to record business
transaction.
What I have Learned (Post Test)
The exercises contained in this section are guaranteed
to build accounting comprehension, skills, and
competence. These serve as a diagnostic tool to
identify your areas of strengths and difficulties.

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OBJECTIVES:
K. Explain the nature of transactions of a merchandising
business.
S. Describe the different business documents & inventory
systems used in merchandising.
A. Show the importance and benefits of merchandising
business in our community.

I. WHAT HAPPENED

You are now done exploring

what is a Service Business, its
transactions and its
accounting cycle. Now, let
us proceed to another
type
of business activity popular
in our community today.

Can you identify what type

https://reflektion.com/resource/merchandising-types-and-
examples
of business activity is this as
being shown by these
pictures?

http://www.accounting-basics-for
students.com/what-is-
inventory.html https://www.pngwing.com/en/free-png-yaaaw

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PRE-TEST:

TEST YOUR UNDERTADING 1

A. Direction: Identify the following establishments it is a Service Business or a

Merchandising Business. Write S for Service Business and M for Merchandising
Business. Write your answers on your notebook/activity sheets.
1. Nena’s Restaurant _________________
2. David Salon _________________
3. Puregold _________________
4. Go Dental Clinic _________________
5. Citi Hardware _________________
6. Mercury Drug _________________
7. Grocery Store _________________
8. Lito’s Repair Shop _________________

TEST YOUR UNDERTADING 2

B. Direction: List down five (5) examples of merchandising business that you
can find in our community.

Merchandising Business (Examples)

1.

2.

3.

4.

5.

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II. WHAT YOU NEED TO KNOW

A merchandising business is a business engaged in a buying and

selling of goods or products. Also, "trading" and "retailing" describes
a merchandising business.
The primary product of this business is the "merchandise" items it
sells. Meaning, there's a presence of physical products which are
being purchased and sold.
This business in order to earn, the entity buys goods and adds
markup
or profit to the cost of goods then sells them to the customers.
(http://wbbbb-
ams.blogspot.com/2012/07/nature-of-merchandising-business.html)

DISCUSSION

NATURE OF TRANSACTIONS OF A MERCHANDISING BUSINESS

A merchandising company is an enterprise that buys and sells goods to

earn profit.
Examples:
• Rose Pharmacy
• Puregold
• Ace Hardware
• Grocery Stores
TYPES OF MERCHANDISERS
1. Wholesaler - one who buys in bulk or volume directly
from a manufacturer and sells the goods to a retailer
2. Retailer - one who sells products to end users

Merchandise (or merchandise inventory) refers to goods that are

held for sale to customers in the normal course of business. This includes
goods held for resale. For example:
• Candies, canned goods, noodles sold at a grocery stores
• Juice, biscuits sold in a grocery store
• Medicines sold in a pharmacy

Note: If a grocery store decided to sell an old computer used in

the office, this would not be merchandise because grocery stores do not
normally sell computers and the store is simply selling off old office
equipment. But a computer would be merchandise for a computer store
who resells computer units. Merchandise for one firm may be a fixed asset
(or property and equipment) for another.
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 In another example, a pharmacy decided to sell a table used in
their display area. This table is not merchandise of a pharmacy. However, to
a retail furniture store a table is merchandise because the business of a
furniture store involves the buying and selling of tables.

A merchandiser’s primary source of revenue is sales revenue or sales.

Expenses for a merchandising company are divided into two

(2) categories:

1. Cost of goods sold (COGS) - the total cost of merchandise sold

during the period; and
2. Operating expenses (OP) - expenses incurred in the process of
earning sales revenue that are deducted from gross profit in
the income statement. Examples are sales salaries and
insurance expenses.
Note: Gross profit (GP) is equal to Sales Revenue less the Cost of Goods
Sold.
Income measurement process for a merchandiser follows as:

Sales - Cost of Gross Profit - Operating = Net

Goods = Expenses Income
Sold
(COGS (Loss)

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 OPERATING CYCLE OF A MERCHANDISING BUSINESS

(http://wbbbb-ams.blogspot.com/2012/07/nature-of-merchandising-business.html)

Merchandising Company operating cycle (cash to cash) involves:

1. Buy merchandise inventory
2. sell inventory to customer
3. Obtain Accounts Receivable/ Collect from Customer
4. Receive cash
The operating cycle for a merchandising company starts with
having cash available, buying merchandise inventory, selling the
merchandise to customers, and finally collecting payment
from
customers

JOURNALIZING THE TRANSACTIONS IN A MERCHANDISING BUSINESS

Step 1, transactions are identified and measured. At this stage, the

documents used by the business are analyzed to see whether
these transactions have financial impact or effect. Recall the rule
that only financial transactions are recorded and that the
amount can be measured. These two conditions must exist in order
for a particular transaction to be recognized or recorded. As
defined, financial transactions are those activities that change
the value of an asset, liability or equity.

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Step 2 is the Preparation of Journal Entries (Journalization)

A merchandising company may use special and general

journals to record its transactions.

SPECIAL JOURNALS
Some businesses encounter voluminous quantities of similar and
recurring transactions, which may create congestion if
these transactions are recorded repeatedly in a single day or monthly
in the general journal. The use of special journals will eliminate this
problem.

The following are the commonly used special journals:

1. Cash Receipts Journal -used to record all cash that had been
received
2. Cash Disbursements Journal -used to record all transactions
involving cash payments
3. Sales Journal (Sales on Account Journal) -used to record all sales on
credit (on account)
4. Purchase Journal (Purchase on Account Journal) -used to record all
purchases of inventory on credit (or on account)

INVENTORY SYSTEMS
Maintaining inventory items is a unique set-up in a merchandising
business. There are two methods of accounting for inventory, namely:
Perpetual Inventory System and Periodic Inventory System.

Merchandising entities may use either of the following inventory systems:

1. Perpetual System — Detailed records of the cost of each item are

maintained, and the cost of each item sold is determined from
records when the sale occurs. For example, a car dealership has
separate inventory records for each vehicle.
• Record purchase of Inventory.
• Record revenue and record cost of goods sold when the item
is sold.
• At the end of the period, no entry is needed except to
adjust
inventory for losses, etc.

2. Periodic System — Cost of goods sold is determined only at the

end of an accounting period. This system involves:
• Record purchase of Inventory.
• Record revenue only when the item is sold.
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 • At the end of the period, you must compute cost of goods
sold
(COGS):
1. Determine the cost of goods on hand at the beginning
of the accounting period (Beginning Inventory = BI),
2. Add it to the cost of goods purchased (COGP),
3. Subtract the cost of goods on hand at the end of
the accounting period
4. (Ending Inventory = EI) illustrated as follows:

BI + COGP = Cost of goods available - EI = COGS

for sale

Additional Considerations:
❖ Perpetual systems have traditionally been used by
companies that sell merchandise with high unit values such as
automobiles, furniture, and major home appliances. With the use of
computers and scanners, many companies now use the perpetual
inventory system.

❖ The perpetual inventory system is named because the

accounting records continuously — perpetually —show the quantity
and cost of the inventory that should be on hand at any time. The
periodic system only periodically updates the cost of inventory on
hand.

❖ A perpetual inventory system provides better control over

inventories than a periodic inventory, since the records always
show the quantity that should be on hand. Then, any shortages
from the actual quantity and what the records show can
be investigated immediately.

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III. WHAT HAVE I LEARNED

POST TEST:
LET’S HAVE AN EVALUATION!

Direction: Choose the best answer for each of the following questions.
Write your answer in your activity notebook.

1. The following are part of the operating cycle of a

merchandising business except _________.
a. receive Cash c. buy Merchandise Inventory
b. obtain Accounts Payable d. sell Inventory
2. Which of the following establishments is a merchandising
business?
a. Barber Shop c. Dental Clinic
b. Restaurant d. Pharmacy
3. It is a type of business activity that buys and sells goods to
earn a profit.
a. Service Business c. Merchandising Business
b. Manufacturing Business d. None of these
4. It refers to the total cost of merchandise sold during the
period.
a. Beginning Inventory c. Ending Inventory
b. Cost of Goods Sold d. Operating Expenses
5. It is a type of special journal used to record all transactions
involving cash payments.
a. Purchase Journal c. Cash Receipts Journal
b. Sales Journal d. Cash Disbursements
Journal
6. Another type of journal used to record all cash that had been
received.
a. Cash Receipts Journal c. Sales Journal
b. . Cash Disbursements Journal d. Purchase Journal
7. A merchandising inventory system where cost of goods sold is
determined only at the end of an accounting period.
a. Ending Inventory c. Periodic System
b. Beginning Inventory d. Perpetual System

8. It is a type of merchandiser who sells products to end

users.
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 a. Buyer c. Wholesaler
b. Retailer d. Customer
9. It is the expenses incurred in the process of earning sales
revenue.
a. Cost of Goods Sold c. Sales Expense
b. Inventory Expense d. Operating Expenses
10. Analyze the following statements:
Statement 1: A periodic inventory system provides better
control
over inventories than a perpetual inventory.
Statement 2: The periodic system only periodically updates the
cost of inventory on hand.
a. Only Statement 1 is True c. Both Statements are True
b. Only Statement 2 is True d. Both Statements are
False

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 REFERENCES

Carlsberg S. Andres, Arthur P. Barrido,Jr., Christopher B. Honorario. 2016.

Teaching Guide for Senior High School FUNDAMENTALS OF
ACCOUNTANCY, BUSINESS, AND MANAGEMENT 1. Quezon City:
Commission on Higher Education.

Long, Flocer Lao. 2016. Fundamentals of Accountancy, Business, and

Management 1 for Senior High School. Quezon City: C & E Publishing,
Inc.

(2014, January 4). Retrieved November 7, 2020, from WBBB Acounting and
Management Services: http://wbbbb-
ams.blogspot.com/2012/07/nature-of-merchandising-business.html

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 DEPARTMENT OF EDUCATION
SCHOOLS DIVISION OF NEGROS ORIENTAL

SENEN PRISCILLO P. PAULIN, CESO V

Schools Division Superintendent

JOELYZA M. ARCILLA, EdD

Assistant Schools Division Superintendent

MARCELO K. PALISPIS, EdD

Assistant Schools Division Superintendent

NILITA L. RAGAY, EdD

OIC - Assistant Schools Division Superintendent
CID Chief

ROSELA R. ABIERA
Education Program Supervisor - (LRMS)

ELISA L. BAGUIO, EdD

Division Education Program Supervisor - MATHEMATICS

MARICEL S. RASID
Librarian II (LRMDS)

ELMAR L. CABRERA
PDO II (LRMDS)

CHRISTINE G. DE PADUA
Writer

IVANNE RAY A. GIDOR

Lay-out Artist
_________________________________

ALPHA QA TEAM
GIL S. DAEL
MARIA SOLEDAD M. DAYUPAY
MARIA ACENITH D PASTOR
JEE LIZA T. INGUITO

BETA QA TEAM
RICKLEOBEN V. BAYKING
LITTIE BETH S. BERNADEZ
GIL S. DAEL
MARIA SOLEDAD M. DAYUPAY
MARIA ACENITH D PASTOR
JEE LIZA T. INGUITO
MERCYDITHA D. ENOLPE
RONALD G. TOLENTINO

ENHANCEMENT TEAM
ROSITA A. LOZANO
MARIA SOLEDAD M. DAYUPAY

DISCLAIMER

The information, activities and assessments used in this material are designed to provide accessible learning modality to the teachers
and learners of the Division of Negros Oriental. The contents of this module are carefully researched, chosen, and evaluated to comply with the
set learning competencies. The writers and evaluator were clearly instructed to give credits to information and illustrations used to substantiate this
material. All content is subject to copyright and may not be reproduced in any form without expressed written consent from th e division.

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 SYNOPSIS AND ABOUT THE AUTHOR

This self-learning kit will ANSWER KEY

serve as a guide for students
taking up Accountancy,
Business& Management to
identify and describe the

B. Note: Answers may vary

Let’ s have an Evaluation!

Test your Understanding 1

4. Department Stores
nature of transactions of a

3. Hardware Stores
7. M
6. M
5. M

2. Mercury Drugs
8. S
merchandising business,

5. Supermarkets
1. Grocery Store
operating cycle of a
merchandise business and its

POST TEST:
Pretest:
corresponding business

3. M
2. S

4. S
A. 1. S

2. D
1. B
documents used to record this
transactions as well as the type
of inventory systems used in
merchandising. This helps the
learners to directly recognize
Let’ s have an Evaluation!

all transactions under the

merchandising type of
business.
Enjoy the rest of the
POST TEST:

module. Have fun while

10. B
2. D

5. D

9. D
6. A
3. C

7. C
1. B

4. B

8. B
learning.

AUTHOR

Writer: CHRISTINE G. DE PADUA. She graduated at

Saint Francis College-Guihulngan with a degree of
Bachelor of Science in Business Administration
major in Financial Management in the year 2012.
She took her Continuing Professional Education
(CPE ) units at Cebu Technological University-
Moalboal Campus in the year 2015. She is currently
teaching ABM subjects at La Libertad Technical-
Vocational School (SHS),and at the same time
designated as the Teacher In-Charge of the Senior
High School Department.

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